If you're like most small ecommerce businesses, you'll need
to amend your Customer Agreement from time to time. You
might want to add a new membership option... or add a
clause for a money-back guarantee, just to name a couple of
examples.
Note that your Customer Agreement may go by any one of
several names -- such as SaaS Agreement, Membership
Agreement, Subscription Agreement, Terms of Sale, Content
License Agreement, etc.
Will your amendments be effective? That's the question you
should ask. If the new provisions are worth adding, it's
worth it to make sure that they're legally enforceable.
Up to now, the solution adopted industry-wide was to be
sure that the original agreement had a clause that goes
something like this:
"We may amend these contract terms at any time; your
continued use of this site indicates your acceptance of
these modified terms." It's been generally believed that
a clause like this is probably legally effective... that
is, until the case of Douglas v. Talk America, No. 06-75424
(9th Cir. July 18, 2007).
Douglas v. Talk America
Talk America needed to make typical amendments to its
online agreement which included additional charges, a
clause that required arbitration of disputes instead of
litigation, and a change of controlling state law. The
plaintiff filed a class action against Talk America
claiming that the amendments were not enforceable due to
lack of notice.
Talk America sought to dismiss the class action suit by
compelling arbitration, but the 9th Circuit stated that it
would be a "fundamental misapplication of contract law" to
hold that the plaintiff was bound by the revised contract
terms when he was not notified of the revisions.
In the Douglas case, the 9th Circuit ruled that contract
revisions are not enforceable where the only notice is
merely posting the revised contract online. With this
ruling, the 9th Circuit became the first federal appellate
court to rule on the enforceability of these types of
contract provisions. This ruling has the effect of shifting
a significant burden in terms of contract management to
you. And it's a major pitfall to avoid.
The Court reasoned that the plaintiff could have known of
the new contract terms only after visiting Talk America's
website, but that even if he had visited the website, he
would have had no reason to look for revisions to contract
terms.
In its opinion, the Court stated: "[p]arties to a contract
have no obligation to check the terms on a periodic basis
to learn whether they have been changed by the other side."
The court went even further stating that if "continued use
of Talk America's service could be considered assent, such
assent can only be inferred after proper notice of the
proposed changes."
How To Provide Notice?
The 9th Circuit did not provide a discussion of how notice
is to be provided. At this time, online notices sent by
email or by posting in the user's account would seem to be
sufficient if the online agreement provides for these types
of notice for the purpose of amendment of online
agreements. Of course, offline notices sent by old
fashioned, "snail mail" should also suffice, but that's a
very expensive alternative.
So, as a result of the Douglas case, you would be advised
to add clauses similar to these to your customer agreements:
"Modification of Agreement. We reserve the right to modify
this Agreement at any time by posting an amended Agreement
that is always accessible on this site's home page and by
giving you prior notice of such amendments. Your continued
use of this site after notice of a modification indicates
your acceptance of the amended Agreement. You should check
this Agreement through this link periodically for
modifications by clicking on the link provided near the top
of the Agreement for a listing of material changes and
their effective dates."
"Notices. We may give notice to you by means of (i) a
general notice in your account information, (ii) by email
to your e-mail address on record in your Registration Data,
or (iii) by written communication sent by first class mail
to your address on record in your Registration Data. Such
notice shall be deemed to have been given upon the
expiration of forty eight (48) hours after mailing or
posting (if sent by first class mail) or twelve (12) hours
after sending (if sent by email)."
Conclusion
The lesson learned... online agreements offer significant
flexibility in terms of contracting and contract
management. However, the important lesson to be learned
from the Douglas v. Talk America case is that flexibility
has its limits. You just can't post contract amendments and
expect them to be enforceable.
You have to give notice.
----------------------------------------------------
Chip Cooper is a leading intellectual property, software,
and Internet attorney who advises software and ecommerce
businesses nationwide. Chip's 25+ years of experience
include 20 years as Adjunct Professor of Computer Law at
Wake Forest University School of Law. Visit Chip's
http://www.digicontracts.com/site and download his FREE
newsletter, Website Law Alert, and also learn about his
"Do-It-Myself" and "Do-It-For-Me" service options.
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